Why the Golden State Warriors are the real winners of the NBA draft

Alright, so the real winner of the NBA draft is clearly New Orleans. The Warriors only had a 3.6% chance of winning the draft lottery. Here’s the thing — before they ever entered the draft — they had already won. The key to this is the NBA’s very cruel pay structure to young players.

The last pick in the first draft is an amazing value

There are two key aspects to the NBA draft. The first is that the player’s pay is restricted and this happens on a decreasing scale. The 1st pick gets the highest contract (around $5 million or just below the league average) and the 30th pick gets the lowest contract (around $1 million). In addition everyone of these contracts breaks down as follows:

2 years guaranteed

2 years team option

RFA in fifth years

When I bring up Jae Crowder, who our draft expert James has touted as this year’s draft gem, I keep hearing people say savvy teams can pick him up in the second round. That’s not quite right. In fact, New York can teach us a few lessons about that.

The 30th pick is awesome

In the 2005 draft the Knicks picked up David Lee with the 30th pick in the first round. In his rookie contract he racked up almost 40 wins for the meager cost of around $4.5 million. What’s more, when his contract was up the Knicks were able to pick him up for one more year for $7 million and he put up another 10 wins. So for a mere $12 million dollars over 5 years the Knicks got almost 50 wins. In the same draft Andrew Bogut was picked first. In his rookie contract Andrew Bogut earned over $20 million. When his contract was up he was re-signed to a 5 year $60 million dollar contract. Andrew Bogut has yet to produce 40 wins in his career.

The key difference here is risk. Let’s say David Lee had been terrible or sustained a major injury in his third season. Then the Knicks would be out less than the cost of a one year mid level exception. And as we saw, come extension time they were able to lowball David Lee. Compare this to Andrew Bogut, who was costly (rookie wise) from the get go and costly to re-sign.

The second round is good and bad

Another important lesson from the Knicks comes from this season. Both Landry Fields and Jeremy Lin are key priorities in the offseason (and for Knicks fans that don’t think Fields is a key priority, I will gladly take him on the Nuggets) Both of these players were signed in the second and made just a little over $1 million in their first two years. The problem is at the end of their first two seasons their contracts were up. While the NBA has restricted the amount 2nd rounders can re-sign for thanks to Gilbert Arenas, they can both make around $11 million in the next two seasons. This makes them just as expensive as a top 10 pick and more expensive in their third and fourth season as everyone outside of the #1 pick.

Summing up

Sure fire picks tend to come with a cost. To get them requires bigger contracts. Now the NBA has a salary structure that means every rookie contract is a bargain. That said, the biggest bargain is the 30th pick. In fact, it’s arguably the best pick. To get the #1 pick requires having a bad team. The best team in the draft can get the #30 pick. They can then stay a good team and now get a very cheap prospect. It turns out that NBA teams are still bad at assessing draft value. And this means there’s still good value to be found even in the second round. So a team that’s good at scoping draft talent can get great bargains late in the first round. This year the Warriors won the draft in terms of getting the best for value pick. Here’s hoping they take advantage.

Nicholas,
Good question. Here is how the study was done (http://www.springerlink.com/content/n786k1j3l66ru3r9/?MUD=MP) The authors looked at college stats that translated to NBA stats. They then looked at college stats that were highly coveted by NBA teams. It turns out teams give too much value to stats that either don’t matter (being a little taller) or overvaluing certain stats (points in particular) to ignoring stats that translate well (rebounding).

Your retroactive point isn’t bad (in essence, avoid backfitting) I will say that stats are much more consistent in the NBA when compared with other sports, so there is that.

Thanks Andres. This is what I was hoping to find. I know long ago (07-08 era) Doerr used to present an annual model to mixed success, but I always appreciated the actual prospective application and subsequent review.

Article says more about the relative value of management teams being able to find hidden gems. Chandler Parsons (also from UF!) is a great example from the Rockets. I’m a Lakers fan (as some probably guessed) and the one thing I hate is that their front office seems completely incapable of finding players like other top teams seem able to (though I’m not sure how much of that stems from Phil refusing to play rookies and the difficulties of the triangle offense).
Teams need superstars to win. Unfortunately, superstars take up most/all of the salary cap. Those teams Spurs able to find cheap players to put around their superstars are the ones that will do well under the new CBA.